Debt Forgiveness Can Bite Come Tax Time
Debt forgiveness is a fantastic thing. A lender that chooses to forgive some portion of one's loans is good, but it comes with a caveat. The hitch is that the forgiven debt is handled and taxed as income by the Internal Revenue Service, which will hurt come tax season.
Debt forgiveness does not get one off the hook from Uncle Sam
When a loans lender decides to forgive debt, it is called debt relief or debt cancellation. People love it when this takes place. It usually is forgiven as long as the person pays part of the debt.
With regards to debt forgiveness, the Wall Street Journal reports that many people will be annoyed to hear the government considers that income. It is technically a bonus towards petty cash and income, which means it is taxable.
Ergo, it's taxable and forgiving lenders have to give a tax form, a 1099 C, that borrowers have to report on tax forms.
Looking at mortgage forgiveness
If a bank agrees to a short sale on your house or a reduction in principle, that has to be reported on a 1099 C for tax purposes, though sometimes you can get exempt from taxes on it. Home loan forgiveness can be a pretty big chunk of change that you then get taxed on.
Anyone in the Home Affordable Refinancing Program, or HAMP, could stay away from paying taxes on the reduction or refinancing of their home loan, according to a 2007 law called the Mortgage Forgiveness Debt Relief Act. It also helped people who were foreclosed on from dealing with extra taxes.
However, according to the Wall Street Journal, it only applies to home loans to "buy, build or improve" an initial residence. Second-home home loans are not eligible, so in your yuppie faces.
Will be a frustration next year
Homeowners who are dealing with debt forgiveness for mortgage loans may have an easier time if claiming the amount over three years instead of all at once, which is one of the options. When you have not claimed it yet, you should do so now, so you can get the tax exemption. It will only be available until 2014 now that the fiscal cliff negotiations have been finalized, according to CBS. It was going to expire last year, but now it is continued.
Creditcards.com explained that people are getting more debt forgiveness now more than ever. In fact, it is anticipated that the IRS will get 6.5 million 1099 C forms in 2013. In 2003, there were only about 1 million forms filed for debt forgiveness.
Debt forgiveness does not get one off the hook from Uncle Sam
When a loans lender decides to forgive debt, it is called debt relief or debt cancellation. People love it when this takes place. It usually is forgiven as long as the person pays part of the debt.
With regards to debt forgiveness, the Wall Street Journal reports that many people will be annoyed to hear the government considers that income. It is technically a bonus towards petty cash and income, which means it is taxable.
Ergo, it's taxable and forgiving lenders have to give a tax form, a 1099 C, that borrowers have to report on tax forms.
Looking at mortgage forgiveness
If a bank agrees to a short sale on your house or a reduction in principle, that has to be reported on a 1099 C for tax purposes, though sometimes you can get exempt from taxes on it. Home loan forgiveness can be a pretty big chunk of change that you then get taxed on.
Anyone in the Home Affordable Refinancing Program, or HAMP, could stay away from paying taxes on the reduction or refinancing of their home loan, according to a 2007 law called the Mortgage Forgiveness Debt Relief Act. It also helped people who were foreclosed on from dealing with extra taxes.
However, according to the Wall Street Journal, it only applies to home loans to "buy, build or improve" an initial residence. Second-home home loans are not eligible, so in your yuppie faces.
Will be a frustration next year
Homeowners who are dealing with debt forgiveness for mortgage loans may have an easier time if claiming the amount over three years instead of all at once, which is one of the options. When you have not claimed it yet, you should do so now, so you can get the tax exemption. It will only be available until 2014 now that the fiscal cliff negotiations have been finalized, according to CBS. It was going to expire last year, but now it is continued.
Creditcards.com explained that people are getting more debt forgiveness now more than ever. In fact, it is anticipated that the IRS will get 6.5 million 1099 C forms in 2013. In 2003, there were only about 1 million forms filed for debt forgiveness.
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